This “Sleeping Giant” Dividend Stock Just Woke Up: Quick 45% Gain on the Way

The biggest advantage of owning a dividend stock is that it produces income even if the share price is stagnant.

But when a major catalyst kicks in and sends the share price skyward, that’s even better.

That’s the case with our pick today, which had been struggling to gain momentum after its sales figures started to fall in 2013.

Then its share price plunged after the CEO announced a new strategy that involved $7 billion worth of investments to transform the company.

Now the investors who abandoned ship are starting to look short-sighted, as the company’s latest earnings reports show the strategy is paying off.

In fact, in one key segment, the company has put up 25% annual growth for five straight years now.

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With the new strategy just starting to take effect, there’s plenty more growth on the way.

But now that the market is clueing in, there’s not much time left to grab this dividend stock while it’s still a bargain…

This Company Is About to Have Its Second Meteoric Rise

The first Target Corp. (NYSE: TGT) store opened in 1962, and the company has its roots in a dry goods company that goes back to 1902. But its meteoric rise in America began in the 1980s, as it eventually grew to more than 1,800 locations.

Hold on a second. No doubt you’ve heard about the rough time retailers have been having. And as we are about to see, Target has had its own troubles too. But as the whole industry gets shaken up in today’s generational shift, some new winners are starting to emerge. And Target is in a perfect position to be one of those winners.

In the 1990s and much of the 2000s, the store carved its niche as a retailer of goods and clothes that were low-cost but not cheap or out of fashion. As a result, sales rose steadily during those decades, and so did the company’s footprint.

But beginning in 2013, comparable store sales started to decline as the notorious “Amazon effect” caught up to the retail giant. The situation went from bad to worse when the company suffered a security breach during the holiday shopping season at the end of the year. Up to 40 million credit and debit cards were compromised.

Target shares ended up down for the year. And although the stock recovered over the next year or so – rising from $56 to $82 from mid-2014 to early 2015 – it would never gain any momentum after that.

Then, in early 2017, shares plunged again.

That’s when CEO Brian Cornell launched a new strategy to remake the Target brand. He called for remodeling existing stores and opening new, smaller stores in strategic locations. He wanted to launch more store-owned brands, boost web sales, and expand delivery options.

That all sounded great. The problem was the price tag. The new strategy would cost $7 billion. It also meant investors couldn’t expect much in the way of sales or earnings growth over the next two years.

In seven months from late 2016 to mid-2017, TGT fell more than 30%. That fiscal year, earnings per share (EPS) would fall 6%.

But with its latest earnings report, which included the holiday shopping season, Target’s growing pains appear to be over.

Fourth-quarter comparable store sales were as good as they’ve been in the last decade at 5.7%. That’s up from 3.4% the year before.

More impressive than that was the 36% growth in online sales. The company has now grown online sales by at least 25% in five consecutive years, demonstrating that it may have what it takes to fend off Amazon after all.

These numbers come as Target has remodeled about 300 of its locations, unveiled 17 new brands, and acquired the online grocery delivery service Shipt.

But the overhaul isn’t finished. The company plans on getting 1,100 stores remodeled by 2020 – each remodel boosts sales by 2% to 4% – and rolling out eight more brands by the end of 2019.

All of this has made the market wake up to Target’s value – shares have jumped 6% since the earnings report came out on Tuesday. But this stock is still undervalued…

For now.

TGT Is a Bargain, but It Won’t Be for Long

After a lot of volatility, TGT is now up about 7% overall from where it was 12 months ago. But with its overhaul now delivering returns, this stock is worth considerably more than that.

Edward Yruma at KeyBanc Capital Markets set his price target at $110. That’s a 45% rise from today’s price.

That lines up with valuation metrics. At the low end, Target’s price-to-book ratio suggests a 24% rise when compared to the rest of the industry. And at the high end, its price-to-cash-flow ratio suggests a 57% rise.

TGT’s price/earnings ratio for the last 12 months and price/earnings-to-growth ratio for the next 12 months both suggest a 45% rise, give or take a few percentage points.

Meanwhile, you still get a 3.4% yield if you pick up your shares now, which is more than double the industry average.

Now that this giant’s slumber is over, you’ll want to pick it up before the rest of the market wakes up to its value.

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